C.I.T.PATIALA vs. CHANDIGARH BOTTLING CO.CHANDIGARH

Following questions of law have been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh, arising out of its order dated 7.3.1989 in ITA No.27/Chandi/86 for the assessment year 1980-81:- “1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the findings of CIT(A) that the new empty bottles of the assessee were a plant and therefore depreciation @ 100% is allowable on the new empty bottles purchased during the year since the value of each bottle is less than Rs.750/-?

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law and on facts in allowing 15% depreciation on old empty bottles/shells?

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right on facts and in law that the security deposits from the customers/dealers against the bottles does not constitute trading receipts of the assessee?”

It is not disputed that in the case of the assessee itself, this Court has dealt with the issue involved in Question Nos. 1 and 2 in ITA No.6 of 2001 (The commissioner of Income Tax, Chandigarh v. M/s Chandigarh Bottling Co. Chandigarh) decided on 20.11.2007 and held that bottles used by soft drinks manufacturer constitute plant and 100% depreciation is allowed thereon if value of each bottle is less than Rs.750/-. Accordingly, the said questions are answered against the revenue and in favour of the assessee.

On question No.3, finding recorded by the Tribunal is as under:- “We have considered the rival submission as also the decisions referred to above. In the case of Punjab Distilling Inds. Limited (supra) the facts were quite different. There was scarcity of bottles of liquor after the war. In order to relieve that scarcity the Govt. devised a scheme whereby the distiller was entitled to charge the wholesaler a price for the bottles in which the liquor was supplied at rates fixed by the Govt. which he was bound to repay when the bottles were returned. In addition to the price fixed the assessee took from the wholesalers certain further amounts described as security deposits which were returned as and when the bottles were returned. The Hon’ble Supreme Court held on those facts that the security deposits amounted to trading receipts. In the present case the bottles were not sold. In fact the terms and conditions a copy of which has been filed by the assessee on the paper book clearly spell out that the bottles and cases printed or marked with the assessee’ company’s name or trade mark were to remain the property of the assessee and a charge against such bottles or cases being in the nature of a deposit merely ensured the return of the goods and did not amount to sale. The conditions further provided that the deposits were to be refunded by the assessee on return of such bottles and cases in good condition. Therefore, the security deposits did not constitute a trading receipts in the hands of the assessee and it was merely a deposit obtained from the constituents in order to ensure the return of the empties. The decision in the case of the Punjab Distilling Inds. Limited (supra) does not therefore assist the department. Infact the facts in 29 ITR (Trib) (supra) accord with the facts in the case of the assessee. We therefore find no force in this ground. Incidentally the same view was held by a special bench of the Appellate Tribunal in the case of Detective Devices (P) Limited v. ITO (1987) 22 ITR 9. (Hyd. Special Bench) where the assessee company was a dealer in liquidation gases and supplied cylinders to the customers. It was held in that case that the deposits constituted borrowed money which could not be taxed as trading receipts.”

The above finding of fact clearly shows that in the facts and circumstances of the present case, the security deposits from the customers did not constitute trading receipts of the assessee and judgment of the Hon’ble Supreme Court in Punjab Distilling Inds. Limited v. CIT (1959) 38 ITR 619 was rightly distinguished. Accordingly, the question is answered against the revenue and in favour of the assessee.

The reference is disposed of. (Adarsh Kumar Goel) Judge September 30, 2010 (Ajay Kumar Mittal) ‘gs’ Judge 4